28 Jan 2012

Trading on the London Stock Exchange

Nice to see that the London Stock Exchange now provides a convenient Excel file will all the daily trading volumes since the beginning of 2010. Here's the webpage, and you can download the excel file here.

As usual, I decided to add all the numbers together for fun.

For 2010, the total was £1,152,798 million, and for 2010,  the total was £1,187,211 million. In other words, well over £1 trillion for each year.

Now, don't forget that share trading in the UK is subject to a 0.5% Financial Transaction Tax. It's Stamp Duty, which has been charged since 1986. Amazingly, it hasn't stopped people trading. Funny that, when you hear people saying that even a 0.005% tax on any other financial transactions would be a catastrophe.





7 comments:

  1. Simon,

    A remark on the UK tax. There is a tax relief for intermediaries (banks, market makers), which means that that over 70% of transactions are exempt from tax. It also means that the tax in mainly paid by private investor (not banks).

    A similar tax exists in Belgium, its is a 0.07% tax (subject to a maximum of €500 per transaction). There also transactions made by some financial institutions, such as banks, insurance companies, organizations for financing pensions (OFPs) or collective investment are exempted from the tax.

    More details on Wikipedia: http://en.wikipedia.org/wiki/Financial_transaction_tax and in the document by the European Commission "IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC"

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  2. Simon,

    A remark on the UK tax. There is a tax relief for intermediaries (banks, market makers), which means that that over 70% of transactions are exempt from tax. It also means that the tax in mainly paid by private investor (not banks).

    A similar tax exists in Belgium, its is a 0.07% tax (subject to a maximum of €500 per transaction). There also transactions made by some financial institutions, such as banks, insurance companies, organizations for financing pensions (OFPs) or collective investment are exempted from the tax.

    More details on Wikipedia: http://en.wikipedia.org/wiki/Financial_transaction_tax and in the document by the European Commission "IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC"

    ReplyDelete
  3. Whether it is a catastrophe would depend on how much money I make on the transaction.
    If I have £1 million and I turn it around 10 times a day for a miserly profit of 0.01% after existing taxes, I could take home £1000 a day and have a £365.000 income per year. Pretty decent. 

    A TT of 0.005% would spoil it all and even eat into my initial million.

    Not that I would be a socially very useful member of society, but suppose then I'd go and get a real job. And even if I make £365.000 a year the TT would be reduced £1825, not the original £182,500.

    If many people are doing this kind of business at the moment the TT would eliminate those ways of making money. This might be a good thing, but it would also eliminate the chance to tax them. 

    So the question is how profitable is a transaction. And how big is its part in the overall scheme.
    It needs to be weighted after all, maybe.
    Or there needs to be a way to project which transactions will disappear, otherwise the tax revenue is not really predictable.  

    So, what will be left in the state's pocket, after it is implemented?

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  4. You're right. Even 0.01% would wipe out any trading that didn't make at least 0.01% profit per exchange. But the fact is that transactions in the real world are necessary. Even though I get charged 2% for paying for anything with a credit card in a foreign currency, I still buy things when I'm in the states because I need them.

    It would be great to know precisely how much of the €4000 trillion in transactions (http://simonthorpesideas.blogspot.com/2012/02/which-country-will-be-first-to-cash-in.html ) in the EU are actually sufficiently important to survive the introduction of an FTT. There's one way to find out for sure - impose one and see what happens!

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  5. I agree. Let's find out what happens. But you might end up with way less than 4000 trillion a year. 
    And in order to create a true FTT that replaces everything you need to know how much you get out of it. 

    To be adopted it would have to have a realistic income perspective. You cannot base it on €4000 trillion, if in the end they are only going to be €40 trillion. 

    And the other aspect is, it might be worth to keep these "unnecessary" transactions around, but take less from them. It'll still increase your revenue. But the same question remains, how much do you actually get out of it in the end. 

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  6. For me, the idea of the floating FTT rate that automatically adjusts to produce the required level of revenue is the solution to this dilemma. At €4000 trillion, the rate needed to replace all taxes would be well under 0.1%. If transactions collapsed and we ended up paying 1%, would you really mind?  I pay 2% for all foreign currency payments with a credit card, banks often charge 1% for drawing out cash from an ATM etc...

    For business, even a 1% overhead is nothing, as long as everyone has to pay. The problem with the current arrangement is that multinationals can avoid paying taxes, whereas nationally implanted companies end up paying the bill. That sort of unfair arrangement would end. But companies working within the FTT area would have a huge advantage relative to places where corporation taxes still operate.

    And no, you don't want different rates for different types of financial instruments. That is an open invitation for lobbyists to try and lever extra advantages for their clients. A flat rate for everyone and everything is corruption proofed.

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  7. Simon,I really like your ideas. I like the sources you present. I am for it. But there needs to be a critical analysis of how much money you will get out of this in reality. Only then you can say that €4000 trillion will actually be there to be taxed. If 90% of the transactions disappear in a puff of smoke as soon as the FTT is introduced, you have a less volatile world, maybe, but not enough to replace all the taxes. 

    Simon, what is the amount of "necessary" transactions? (Mind you, not *all* transactions)
    That is the real basis. 

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